Reichlin: nowcasting, the economy in real time
Economists have harder lives than meteorologists. To make short-term forecasts, the latter just need to open the window. But how can you tell if the quarterly trend for the GDP will be sunny or rainy? This is the highly effective comparison with which Lucrezia Reichlin, professor at the London Business School, introduced her speech for MBA SDA Bocconi's “Economic Scenarios” cycle entitled “Nowcasting: how to make useful economic predictions”. Nowcasting is the art – better, the science – of very short-term economic forecasting. Which is by no means easier than long-term predictions. Yet the data are there, you just need to know how to collect and analyze them.
This is what the platform set up by the Reichlin’s team does, constantly monitoring all the information coming from the markets and any other potentially relevant data in order to have a timely understanding of the current trend in the GDP, and not only. Four requirements guarantee the effectiveness of the model: joint data processing, real-time updating, “parsimony”, i.e. the ability to ignore the noise component, and the exclusion of any judgment. 7 years after getting started, the performance of this model is very similar to that of institutional forecasters.
SDA Bocconi School of Management
28 March 2024
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